SEA Limited’s Q3 & 9M FY2022 Results

SEA Limited’s Q3 & 9M FY2022 Results

Unless you have been living under a rock, I’m sure you should know about all the negativity surround SEA Limited (NYSE:SE) at the moment – as a result of the economic headwinds, and with the company sinking deeper into a net loss position, it has made the painful decision to undergo a few rounds of retrenchment exercises.

The company’s top management have also made the decision to forgo their salaries until it achieves ‘self-sufficency.’ Additionally, the CEO Mr Forrest Li, also said the company will be changing its focus from growth to achieving net profit.

This post was originally posted here. The writer, Jun Yuan Lim is a veteran community member and blogger on InvestingNote, with a username known as @ljunyuan and has close to 2100 followers.

Yesterday evening (15 November), the company have made available its results for the 3rd quarter, as well as for the first 9 months of the financial year 2022, and as a shareholder of the NYSE-listed company (with my average price at US$191.87), you will find my review (where I will be highlighting the good and bad) about its latest financial performance, cash flow statement, along with comments from its CEO. 

SEA Limited derives its revenue from 3 business segments:

i. Digital Entertainment – Through Garena, a leading online games developer and publisher with games such as League of Legends, Call of Duty, Arena of Valor, Free Fire, and Speed Drifters;

ii. E-commerce & Other Services – Through Shopee, a leading e-commerce platform in Southeast Asia and Taiwan, along with SeaMoney, a leading digital payments and financial services provider in Southeast Asia (one of them is Shopee Pay.)

iii. Sales of Goods – Where revenue is generated from the sales of products on the Shopee platform which SEA Limited purchases from manufacturers and third parties. 

Financial Performance (Q3 FY2021 vs. Q3 FY2022)

SEA's Q3 FY2021 vs FY2021 Financial Performance
SEA’s Q3 FY2021 vs FY2021 Financial Performance

My Observations:

  • Compared to the same time period last year, I would say it is largely an improved performance – with gross profit margin recording a 1.4pp improvement (as a result of its cost of sales going up at a lower percentage compared to its total revenue), along with its net loss position improving slightly. 
  • The most notable decline is in its digital entertainment (where it saw a 18.8% q-o-q drop) due to softening of bookings as a result of ongoing moderation in user engagement and monetisation.
  • Another thing to note is that, the q-o-q percentage growth in its total revenue has been on a downward decline since Q1 – from +64.4% to +29.0% recorded in Q2, and to just +17.3% in Q3.

Financial Performance (9M FY2021 vs. 9M FY2022)

SEA's 9M FY2021 vs FY2021 Financial Performance
SEA’s 9M FY2021 vs FY2021 Financial Performance

My Observations:

  • Apart from the company falling deeper into a net loss position (mainly as a result of a 42.7% jump in operating expenses – particularly in sales and marketing, general and administrative, as well as research and development), on a 9-month basis, its results is a positive one (compared to the same time period last year.)

Cash Flow Statement (9M FY2021 vs. 9M FY2022)

SEA's 9M FY2021 vs FY2021 Cash Flow Statement
SEA’s 9M FY2021 vs FY2021 Cash Flow Statement

My Observations:

  • Compared to last year, SEA Limited’s cash flow statement have weakened – no doubt it is still in a net cash position, but it has fallen by 39.8% as a result of a similar percentage decline in its cash & cash equivalents. 

Comments from SEA Limited’s CEO, Mr Forrest Li

“Given the significant uncertainties in the macro environment, we have entirely shifted our mindset and focus from growth to achieving self-sufficiency and profitability as soon as possible, without relying on any external funding.

We are adapting quickly to the changing climate. All our efforts are directed to ensure that Sea not only survives the macro storms but emerges stronger, more efficient, and more resilient – and as a long-term winner in our markets. This positions us to continue capturing the long-term potential of our businesses and markets, and to deliver strong and sustained shareholder returns over time. Over the last quarter, we took decisive actions to improve margins, and set clear goals and priorities for the quarters to come. We remain highly confident about the compelling longterm growth prospects of our businesses and markets.”

Closing Thoughts

For those of you who like to know my views about the company’s recent rounds of retrenchments, no doubt it’s a painful move, but inevitable, as staff costs have been on a steady rise, and played a certain role in the company sinking further into a net loss position. 

As a result of a gloomy economic outlook ahead, I agree with the management’s move to shift from growth to achieving profitability (and cost cutting exercises are one of them.) I’m also encouraged by the fact that the company’s top management have made the decision to forgo their salaries until it has achieved ‘self-sufficiency’ (its something that many companies’ top management are unwilling to do.)

I will continue to keep a close watch on the company’s results in the coming quarters.

With that, I have come to the end of my review of SEA Limited’s latest results for the third quarter, as well as for the first 9 months of the financial year 2022. Please note that all the opinions you’ve just read above are purely mine which I’m sharing for educational purposes only. They do not represent any buy or sell calls for the company’s shares. As always, please do your own due diligence before you make any investment decisions.   

Disclaimer: At the time of writing, I am a shareholder of SEA Limited.

Once again, this article is a guest post and was originally posted on ljunyuan‘s profile on InvestingNote. 

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